SC paves way for leasehold to freehold conversion of industrial, commercial properties in Chandigarh
The Supreme Court on Monday paved the way for the conversion of industrial and commercial properties in Chandigarh from leasehold to freehold after finding the observations and reasons given by the Chandigarh administration on the issue to be “not tenable”. The apex court gave the Chandigarh administration three weeks to “do the needful” and said that if this was not complied with, “Ajay Kumar Bhalla, Union Home Secretary, shall remain present in court”.
The division bench of Justices Hemant Gupta and Sudhanshu Dhulia made the observations during the hearing in the ‘Estate Officer vs Charanjeet Kaur’ case, related to leasehold to freehold conversion of residential property. A consumer court had issued orders in favour of Kaur and the Chandigarh estate office had filed an appeal against that order in the Supreme Court. The apex court disposed of the appeal/order and asked the Chandigarh administration to form a committee under an MP to undertake reforms in the estate office.
“Rest of the proposals will also be taken into consideration by the Ministry of Home Affairs and a positive response taken before the date fixed. Let the needful be done within three weeks. If needful is not done before the said date, Ajay Kumar Bhalla, Union Home Secretary shall remain present in court. The Administrator, Chandigarh Administration to coordinate with the learned Union Home Secretary to facilitate the Advisor,” the bench observed.
The Chandigarh administration had filed an action taken report, enclosing a copy of the communication dated August 28, 2022 forwarded to the under-secretary in the home affairs ministry, in respect of conversion of industrial/ commercial plots from leasehold to freehold in Union Territory of Chandigarh.
One of the issues raised by the administration was that Chandigarh is a landlocked Union Territory with limited land resource and majority of commercial and industrial plots were allotted on the leasehold basis and ownership of these plots lies with the Chandigarh administration. If the commercial and industrial plots are converted to freehold, there will be shortage of properties with the administration.
To this, the Supreme Court bench observed, “We do not understand the logic of the said reasoning. The properties whether they are leasehold or freehold are not available with the administration for use according to their own choice. It has to be used in terms of the Capital of Punjab (Development & Regulation) Act, 1952 and the rules made (by) administration thereunder.
The bench said that they “find the issues raised by the administration appear to be not tenable”.
The administration had pointed out that as the properties had been leased out, Chandigarh administration is getting annual ground rent from these properties, which is a regular source of revenue. The government may lose regular income once it is converted to freehold, it pointed out.
The bench, however, said, “If the property is converted to freehold, it will lead to transfer of the property inviting attractive stamp duty on the sale documents…The freehold property may increase the investment in the industrial or service industry, giving employment to the citizen, more revenue and taxes – direct and indirect. The long-term benefit would outweigh the projected income from the ground rent,” the bench observed.
The loss of income in the form of unearned increase was also highlighted. As per Chandigarh Estate Rules, 2007, unearned increase is levied at the time of transfer of leasehold property. The administration said that it was charging 1/4th (25%) unearned increase, which is a major source of income, and once property is converted from leasehold to freehold, then the person is entitled to sell it immediately. “So there will be huge windfall gain at the cost of exchequer which can be easily questioned,” it was said.
It was also mentioned that the conversion may also be examined in the light of limited land in Chandigarh.
The bench, however, said that if “property is converted to freehold, it will lead to ease of doing business, which will attract not only capital investment but also human resource, leading to the overall development of the city.”
It observed that the conversion has to be in respect of all industrial, commercial, institutional plots which are not many i.e. 6,621 commercial plots and 1,451 industrial plots apart from 500 plots allotted to educational, political, cultural, institutional bodies.
